10 – 1
CHAPTER 10
TECHNICAL ANALYSIS
I. Underlying Assumption of Technical Analysis
A. The market value of any good or service is determined solely by the interaction of supply
and demand
II. Advantages of Technical Trading
A. Not heavily dependent on financial statements that can have problems or not contain
sufficient information
III. Challenges To Technical Analysis
A. Challenges to Technical Analysis Assumptions – based upon the results of empirical tests
of the efficient market hypothesis (EMH)
IV. Technical Trading Rules and Indicators
A. Typical Stock Price Cycle (Exhibit 10.2)
B. Contrary-Opinion Rules
Many technical analysts rely on technical trading rules that assume that the majority of
investors are wrong as the market approaches peaks and troughs
10 – 2
1. Confidence Index
2. T-Bill-Eurodollar Yield Spread
E. Stock Price and Volume Techniques
1. Dow Theory
Oldest technical trading rule
a. Major trends – tides
b. Intermediate trends – waves
V. Technical Analysis of Foreign Markets
1. Foreign Stock Market Series